E W Scripps Co (SSP) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the third-quarter earnings report conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your hosts, Mr. Tim Stautberg. Please go ahead.

Good morning, all, and thanks for joining us. We will start the conference call today with a few comments from Ken Lowe, our President and CEO, and Joe NeCastro, our Chief Financial Officer. Our prepared remarks should take about 15 minutes, and then we'll open it up for your questions. Given your busy schedules, we will make sure that we're done within the hour.

Before we begin, though, let me introduce the other members of our senior management team who are here with us on the call. Joining us are Rich Boehne, Executive Vice President; John Lansing, President of Scripps Networks; Mark Contreras, Vice President of Newspaper Operations; Bill Peterson, Head of our TV Station Group; and Lori Hickok, who is our Vice President and Controller. Let me also remind you that if you prefer to listen in on the Web, you can go to Scripps.com and click on the link on the front page. An audio archive of the webcast will be available on Scripps.com later today, and we will leave it there for a few weeks so you can access it at your convenience.

Our discussion this morning will also contain certain forward-looking statements, and actual results may differ from those predicted. Some of the factors which may cause results to differ are set forth in our publicly filed documents, including our 2004 Form 10-K. Now here is Ken.

Thank you, Tim. Good morning, everyone. As always, we appreciate you dialing in or listening on the Web this morning. Let me start out by saying our most profitable business really shined during the third quarter with characteristically strong financial performance at Scripps Networks, along with rapid growth at our newest subsidiary, Shopzilla. And in a very challenging advertising environment, Scripps Networks, again led by HGTV and Food Network, achieved solid double-digit revenue and segment profit growth, demonstrating the extraordinary marketing power and popularity of our national television networks.

The appeal of our networks as efficient advertising platforms was once again evident during this year's upfront negotiations. We were able to achieve CPM growth at the upper end of the range for cable networks, and our dollar volume growth rate was in the high teens, also leading the pack. That really bodes well for continued profit growth at Scripps Networks as we head into 2006.

Now, beyond television we have successfully extended Scripps Networks brands to the Internet. Combined, the number of unique visitors to Scripps Networks' websites is up 45% year-over-year. Food Network.com continues to be the genre's most visited website, and HGTV.com is the leading advertising supported destination in its category. It was very clear to us that we have been able to efficiently monetize advertiser demand for engaged audiences with our brands of highly-targeted, entertaining and useful lifestyle programming.

At Shopzilla, which we acquired in June of this year, we were very encouraged by what we saw during the third quarter. On a pro forma basis, Shopzilla's revenue and segment profit were up sharply year-over-year, providing us with solid proof that consumers are quickly discovering the utility and power of our new online comparison shopping service. Shopzilla's third-quarter financial performance affirms our belief that this is a solid, sustainable business model with the potential of delivering outsized returns for our shareholders. By almost any measure, Shopzilla has the competitive edge in this fast-growing marketplace, and we are committed to keeping it that way. Specifically, we have been busy broadening Shopzilla's search capabilities with the ambitious yet very attainable goal of providing a service where consumers can easily find everything that is for sale on the Web from virtually every online merchant. Shopzilla has really made great strides towards that goal and is already perfectly positioned, like our networks, to uniquely answer the growing advertiser demand for accountability.

Now, turning to our newspapers, we made a very important decision in Denver during the third quarter that we believe will result in attractive returns for our shareholders over the long-term, while at the same time strengthening our position in one of the country's best newspaper markets. Along with MediaNews Group, our joint operating partner in Denver, we have decided to consolidate newspaper production operations from two plants into a single facility. Our objectives are to significantly reduce cost, substantially increased efficiencies, and to strengthen the competitive position of Denver's two daily morning newspapers; of course, our Rocky Mountain News and MediaNews Group's Denver Post.

Combining production operations is the next logical step in the life of the Denver JOA, which has been in existence for five years now. In that time, we have been able to take millions of dollars of cost out of the system by combining the business operations of the two newspapers. Combining production operations takes that process to the next level and captures a significant opportunity. Now, the Denver project will have a non-cash effect on our net income and EPS over the next several quarters, which Joe will explain shortly. The long-term benefits and attractive cash on cash ROI in our opinion, however, easily justified the decision to move ahead with this critical capital project.

With all that, let me turn it over to Joe, who is going to take a closer look at operating results and other factors that had a bearing on our third-quarter numbers. Joe.

Thanks, Ken, and good morning, everyone. As you cam see from the release this morning, there's a fair amount of noise in these results, so I'll do my best to clear some of this up before we get to your questions. First was our decision to stop publishing The Birmingham Post Herald last month, and that added a net $0.15 to our EPS for the quarter. This gain is the result of a $41 million cash payment we received from our joint operating partner in Birmingham for agreeing to end the JOA there ahead of schedule. The cash payment represents an acceleration of the income we would have received over the remaining life of the JOA, which was scheduled to run until 2015. Of course, this is a non-recurring item and we have accounted for Birmingham as a discontinued operation for all periods that are presented in the financials.

Two other items that bear a mention added a combined $0.02 to the earnings per share. The first was an adjustment in the estimated tax deduction we can take under the American Jobs Creation Act, and the other was for some interest that was refunded to us by the IRS.

Now turning to operating results, Ken has already talked about the strong financial performance of Scripps Networks and at Shopzilla, so there's no need to go into much detail there. The numbers pretty much speak for themselves. Focusing first on the newspaper group, as Ken mentioned, MediaNews Group and Scripps jointly decided to consolidate newspaper production into one facility in Denver. Once that decision was made, the Denver Newspaper Agency which manages the JOA shortened the useful life of and accelerated the depreciation on existing production equipment that will be replaced with this project. The accelerated depreciation will reduce our equity income from the Denver JOA by $40 million over the next two years, with $9 million recorded in the current quarter. This charge reduced earnings per share by about $0.03.

Looking ahead to the fourth quarter, we expect that those numbers will be about $11 million in increased depreciation and $0.04 per share. In 2006, equity income from Denver will be reduced by about $3 million per quarter. The good news in all this is the money we will be saving on newsprint and labor costs by operating just one printing plant. Once this plant is fully operational, the $130 million investment will yield more than $20 million annually in cost savings. The project involves buying new presses, adding on to an existing plant, and shuttering another. It is important to note that this is an agency project and is being financed at the agency level.

Looking at the newspaper group overall, advertising revenue grew at a respectable rate even when you take into account the impact of last year's hurricanes in Florida. Newspaper ad revenue was up about 6%. If you exclude the effect of the hurricanes, the ad growth rate was still about 5%. Classified advertising was up 8%, led by help wanted and real estate which were up 24% and 20% respectively. Automotive was down about 6% during the quarter.

Newspaper segment profit, though, was affected by a number of issues including the reduction in equity income from Denver that we discussed a minute ago, a 14% hike in newsprint prices, higher fuel costs and some unavoidable increases in employee benefit costs. Importantly, we made certain measured investments in new Internet and print products, especially in southwest Florida, where we are expanding to take advantage of phenomenal market growth.

At Shop At Home, segment losses were about even with the third quarter last year as we continued to execute our direct-to-home electronic commerce strategy. There were increases in marketing and promotion expenses related to Emeril's initial appearances and to help build the Emeril brand on the network. We're also building the Internet piece of this business. Traffic to the Shop At Home website has nearly quadrupled from this time last year.

The news at our broadcast television stations is all about political, or rather the lack of it. As anticipated, total revenue for our TV stations was down about 10%. We had about $1 million in political advertising revenue during the quarter, compared with about $10 million during last year's presidential election campaign.

Before we leave the P&L, I'll add a word or two about some non-operating items. Our acquisition of Shopzilla in June of this year resulted in the increased interest, depreciation, and amortization expenses we are reporting this quarter. Taking a look at a couple of balance sheet items, debt at the end of the quarter stood at $850 million compared with $533 million at the end of 2004. Again, the Shopzilla acquisition accounts for most of the increase. Our blended interest rate is currently about 4.8%. The share repurchase program we started in June moved forward during this quarter, this third quarter. We bought back about 480,000 shares at an average price of $49.64, a total cost of about $24 million. Capital spending in the quarter was $21 million.

Now a quick recap of the guidance we issued this morning. Based on advanced advertising sales, we're currently anticipating fourth-quarter advertising revenue for Scripps Networks to be up about 25% year-over-year. Affiliate fee revenue is expected to come in at about $41 million in the quarter. Total Scripps Networks expenses are expected to increase about 15% as we continue to invest in building viewership across all these brands. Fourth-quarter newspaper advertising revenue is expected to be up 4% to 6%.

Accelerated depreciation expense in Denver will reduce the Company's equity income from the Denver JOA by $11 million in the fourth quarter or $0.04 per share after-tax, as we discussed earlier. In 2006, as I mentioned, the Company's equity income from the Denver JOA will be reduced by $3 million per quarter. Shopzilla is expected to generate segment profit of between 13 and $15 million in the fourth quarter. At the Company's broadcast TV stations, advertising revenue is expected to be up 6 to 8% excluding political. Political advertising in the fourth quarter of 2004 was $21 million. Total broadcast television revenue in this year's fourth quarter is expected to be down then some 12 to 14%.

The Company's continuing investment in Shop At Home is expected to reduce fourth-quarter segment profit by about $2 million, and due primarily to the increased profitability of the Food Network and the Company's allocation of operating income to the Tribune Company, minority interest is expected to be between 15 and $16 million in the fourth quarter. Fourth-quarter earnings per share from continuing operations are expected to be between $0.52 and $0.56, including the $0.04 reduction related to the plant consolidation project in Denver. Earnings per share during the fourth quarter of 2004 were $0.54 from continuing operations, excluding the Birmingham newspaper.

With that, operator, we are ready to take questions as that concludes our prepared remarks.

(OPERATOR INSTRUCTIONS) John Janedis, Banc of America Securities.

Just a quick question about Shopzilla. It seems like the business there really started to take off at the time you closed the deal. Was there some sort of technology upgrade over the past few months? And how much of that, meaning the growth, is from leveraging the Scripps platform versus really the underlying improvement in the core business?

I think, John -- this is Ken -- we've spent about a year looking at this business, so it is not a surprise to us that it is starting to take off. There had been some technology upgrades along the way, but nothing significant. I think what you are seeing is just the underlying growth of this business. We are starting to integrate the brand across Scripps Networks, our newspapers, our television stations. As a matter-of-fact if you get a chance to visit the Scripps websites, you'll see Phase I, which is already the inclusion there, of Shopzilla. Phase II yet to come will be a dynamic link, so it is still a work in progress, but I think it is safe to say that the growth that you are seeing is just coming from the popularity of this business. And consumers, as I mentioned in my remarks, really starting to catch up with the fact that this is an efficient way to shop. Needless to say, we are very pleased with where Shopzilla is and where it's going.

Okay, great. Just on ratings into the fourth quarter. Can you talk a bit about HG and Food and the new season? I think I saw maybe a modest decline in September for rating through Home and Garden. Thanks.

Sure, John. This is John Lansing. We actually are seeing a modest increase in our ratings with Food Network going into the fourth quarter, both the total day basis and in primetime. HGTV had a bit of a hiccup in September tied to Katrina, as did most non news oriented networks. But in the first ten days or so of October, we have seen that correction occur and back in the positive range. We are up 3% in terms of impressions in the first two weeks of October. And we're just getting into the launch now of our significant new series and we just launched our national ad campaign this week. You may have seen some of that in various magazines and on television.

So we feel very bullish about the direction of the ratings going into the fourth quarter for both Food and HGTV.

Thanks, John.

Peter Appert, Goldman Sachs.

Hi. Thanks. Two questions please. First the programming expenses at HGTV or the overall expenses at HGTV in the quarter were flat. Is there anything unusual there in terms of the timing of that?

Secondly in the context of very strong results in the cable network business, Great American seems to be the weak link. Is there anything we should be focused on there that might serve as a catalyst to get that thing moving?

Yes, Peter, I'll let John Lansing take both of those.

The expenses in HGTV (ph) are actually a function of accelerated program amortization. We are in year three of the accelerated amortization and that gives the effect on the P&L of lower programming costs when cash out the door is actually different. Not to be confused by the way our investment programming is actually increasing but the way we account for it on the P&L and the amortization has a unique effect this year.

Does that mean, John, then that we should anticipate a fairly meaningful step up in the program expenses as we get into '06?

Meaningful in that it won't be flat, certainly. We will be increasing as we increase investment but it will be averaged over three years of usage going out.

Does that imply lower margins then for HGTV next year versus this year?

No, Peter. We are managing other expenses in our investment in marketing and all other investments on the expense side so that our margins would be at least equal to if not better than '05. And in terms of GAC, really proud of that network and the ad sales effort there. September was a very successful month in terms of ad sales and as we turn the corner now to the fourth quarter with some significant events ahead of us including the 80th anniversary of the Grand Ole Opry and a month-long set of programming initiatives to go along with that.

You may have seen our relief live broadcast for the relief of Katrina victims on September 27. Really brought a lot of attention to the network. And ad sales and the progression of improvement month-to-month in ad sales has been notable. And so I am feeling very positive about GAC.

Peter, just one comment aside. We about two weeks ago had a press conference down in Nashville announcing we're moving the GAC office from Denver to Nashville, which was attended by the Governor and the Mayor of Nashville and just about everybody on music row. So that is a brand -- just one example of step-by-step building block by building block as we have always done with these networks. It is a very thoughtful, long-term build strategy. So we are very pleased with where GAC is from a standpoint of execution at this point. The bottom and top line are going to follow.

Great, thank you.

Bill Bird, Citigroup.

Do you expect to begin to realize the full 20 million in annual Denver production savings in '07? Also could you discuss your strategy for launching new cable shows on Broadband ahead of cable? Thanks.

Bill, it's Rich Boehne. Let me talk just a second about the Denver plant and I will let Joe walk you through the financials on it. If you remember when we formed the joint operating agreement in Denver and if you are not familiar with what those two newspapers look like -- you have joint operations, business and production for two papers, but both are AM papers. One our Rocky Mountain News, is a tabloid. The Denver Post, owned by MediaNews, is a broad sheet.

When we put the two together we always knew one of the biggest opportunities out in the future would be to combine the production facilities. The question was just when we would do it. We decided in this environment to go ahead and fast-track that and to get that new production plant up and running as quick as we can and to realize those savings. So this is probably one of the most significant opportunities we have on the cost side in Denver. We want to get it out of the way just as quick as we can.

The other thing it will do -- what you will see in Denver when this plan is done are two newspapers that really are constructed for the future of newspaper and both will be on a smaller format. There will be a lot of modular selling of advertising. And so we are eager to get it going but obviously weren't really excited about how we had to handle the depreciation in the interim.

Let me let Joe talk about quickly how the savings come on line over the next couple of years.

Bill, this is a longer-term project. I don't think we're going to be fully operational until sometime in '08. You will start to see some savings as early as the first quarter of '08 but you won't get a full 20 million that year. It will be '09 before you get the full impact of the savings.

Bill, we didn't want to wait any longer. The Denver market we believe long term is a great newspaper market. We want to be all set up to capture any kind of upside just as quick as we can.

Douglas Arthur, Morgan Stanley.

I am wondering if you can elaborate on the kind of non newsprint cost trends in the newspaper segment in the quarter, excluding obviously the Denver adjustment. It seems like your costs were up a lot. You mentioned healthcare. Are you sort of through the worst intensity of the healthcare related costs and how is that going to play out going forward? Thanks.

This is Rich again. Let me walk you down those other cash expenses in the newspaper segment. If you look at them all in, they were up about 7.9%. In addition to the Denver plant that you are already excluding, in that 7.9 is an increased reserve for retiree healthcare actually related to Denver and in some cases related to Denver prior to this operating agreement. So if you take that out you have other cash expenses up about 6%.

Then also in there you probably know we launched almost a new daily newspaper in Veneta, Florida. That is north of Naples in Lee County and also stepped up a number of our other non-daily publications there. And also a pretty aggressive Internet strategy down there as well, all designed to capture the opportunity in Southwest Florida, which we think is outstanding. If you take that out, you are down closer to 5%. Still what you have in there benefits, gasoline, and things like that. FTDs are actually down 1.25%.

So once you work it down, then you look ahead to the fourth quarter, you are probably talking something that's more like 4% but still revenues came in a little bit behind I would say what we had hoped for. So we are going to have to be more aggressive on other expenses if we're going to cover these investments especially in Naples and we will commit to doing that.

So the 4% guidance for the fourth quarter, is that before continued costs from the investment in Florida or not?

That is all in there. Like I say, if revenues are going to be little bit weaker than we had all hoped -- even though we had very, very good top line performance, as good as we had hoped for, but still we're going to have to trim expenses in other areas to cover the expansion in Southwest Florida, which we're committed to and think long-term makes a lot of sense.

Great, thanks.

Fred Searby, J.P. Morgan.

A couple of questions. One, back on HDTV and Food, they are both growing in this quarter about 20% revenue basis and I am a little surprised HGTV is actually growing as fast as Food given how much stronger Food's ratings have been. If you could just touch upon that?

Then secondly, the Shopzilla growth has been tremendous and I'm just curious as to where you are in the cross-promotional opportunity. It seems like there would be a substantial opportunity to raise margins and drive traffic through your own properties as opposed to through keyword search and do you expect that to start to pick up in the fourth quarter?

And one little quick housekeeping. Affiliate fees were flat and there's some timing issues bouncing around. In 2006 should we be thinking about those in terms of flattish growth? Thank you.

John, why don't you go ahead and take the HGTV Food ratings question affiliate piece question and I will come back with Shopzilla.

Sure Ken. Thanks. Fred, really three reasons to support the improvement at HGTV. The first and probably the most important is that the brand has done a really good job working with ad sales to manage the deficiency and delivery month-to-month and making each month good to the advertiser during that month and keeping up with the ADUs that were required. I think that brought a lot of credibility into the marketplace for HGTV's ad sales team. Particularly when they got into the upfront negotiations. While everybody knew there were some declines in ratings, they saw that the delivery was being fulfilled on a month-to-month basis.

Secondly, sequentially over the entire year HGTV's ratings have been improving month-to-month. So it has been possible for us to show the evidence that while we had the decline in the fourth quarter of '04 that each month and each quarter we were showing steady improvement.

And then third, we had a strong endemic calendar up front in '04, in January, much stronger than anticipated from some of our strongest endemic advertisers that put a fair amount of demand in the marketplace and helped support pricing. So those three components really allowed HGTV to continue the strong growth.

You're seeing pricing in that category is stronger than it is for Food obviously, right?

At the endemic, yes, it is. The affiliate piece of course we are looking at the renegotiation coming up in '06 of our Comcast agreement at the end of '06. We will be negotiating that over the next year and so that is yet to be determined but we have every anticipation that the rate of growth will be that of our rate card after the negotiation is complete. So no concerns there on the affiliate side.

Fred, I think as you recall when we first announced Shopzilla, one of the things we said we could immediately bring to this business was brand building. Our folks have done just an outstanding job of building some quality trustworthy brands over the last few years. We understand how to do that. We think we can enhance what obviously is already a very sturdy, very strong business at Shopzilla. And to that point and especially with the upcoming holiday period, as you would imagine, we will be doing a branding campaign with Shopzilla across all of our media.

We're been very careful as we have always done with these brands to make sure we get it right. You just don't want to roll out a brand awareness campaign and be off target. So we are in a very deliberate partnership with the Shopzilla management team who really get their brand, who get the essence. So as you see cross promotion spots in our cable networks, our television stations, ads in our newspapers, we feel that especially going into the holiday season we can give it a little extra flame on that shopping card if you've seem our Shopzilla logo.

But it really is all about a really, really strong business. It is just on its own just streaking. So any added boost we can give it was cross promotional as you mentioned, keywords, which we are learning as much about on this side of the Company as they are teaching us in all of our businesses. So we couldn't be more pleased right now with the Shopzilla acquisition and obviously where it is headed.

Any pressure from them to change her name to Scripps-Zilla?

Every day. But seriously I won't take up a lot of time, but they took a big risk in changing BizRate over to Shopzilla. And this of course was before our acquisition and it is really interesting how that brand took off especially with females once they made the change. And of course as you well know, this business is all about accountability efficiency. We mentioned earlier just the changes that take place in this business daily and for competitive reasons we don't get into a lot of it.

But I must say, we are probably learning as much from them as they are from us in brand building areas. So it is a great marriage and if these guys keep this up, maybe we will consider changing the name. Who knows. But we're very pleased.

Fred-Zilla signing off.

Alexia Quadrani, Bear Stearns.

Thank you. Just on Shop At Home, has your initial success there in bringing some account like Emeril over from the networks continued? And if so, has it changed your view on profitability maybe achieved?

And then the second question is just on the newspaper side on the newsprint price, it seemed relatively high in the quarter. Could you give us some sense of what we should expect for our newsprint cost going forward particularly in light of the October 1 rate hike?

Do you want to jump in on the newsprint and we will come back on Shop At Home.

We experienced about a 14% increase in price. Total expense increased to about 9% with about 3.5% decline in volume. Newsprint pricing is one of those great crystal balls which we will really need to just continue to monitor. From all we hear now, the announced price increases, the suppliers who intend to follow through on and we are assuming that in our planning both fourth quarter ending those.

But in terms of total expenses and price increases, our pricing was in line with many of the other -- many of our peers.

And on Shop At Home?

This is John Lansing. A terrific quarter for us on the top line. We were up 25% at Shop At Home and to your point about the talent migration from our other networks, we certainly are seeing a benefit. You may have seen Joan Steffen from HGTV or Carol Duval appear on Shop At Home. But perhaps most the significant impact has been from Emeril and his appearance both in July and September.

From the inception of our Emeril agreement, we've generated over $3 million in sales just from those Emeril products. 73% of those sales being cookware sets. And here is an anecdote that might give you a sense of how beneficial this is to our business. To date we have had 19,000 total customers to purchase the Emeril products -- 70% -- 70% of those are new customers. That is 20% above our usual customer acquisition rate. But maybe most importantly, of those 70%, 81% have returned to Shop At Home to purchase in other categories.

So we are really excited about what the talent migration can do to build that business and it allows us a very focused and targeted way to promote the business on our other networks. As a matter-of-fact, when you look at the categories in terms of growth, the growth in the quarter for topline sales, the home category represented 35% of our growth with the cooking category representing 18% of our growth. So we are beginning to see the effects of our slow migration away from the low margin electronics to the higher margin cooking and home products that are in our category and allow us to therefore cross promote and try to affect that topline.

And Alexia, this is Ken. I think -- did you ask about GAC and Shop At Home?

I'd asked about whether profitability should be reached much sooner given all your success at Shop At Home?

No, I think we're still at this point looking at fourth quarter as we have said all along 2006.

Great, thank you.

William Drewry, Credit Suisse First Boston.

Just wondering what is the general direction of the scatter market in cable right now? Do you feel like its -- I mean your guidance looks great for the fourth quarter. But I'm just wondering what that means for your underlying scatter growth and how you feel, John, maybe where the market is headed right now? Is it getting better or worse?

Also if you can, if you could touch on where you feel like the spot TV market is right now ex political? Is that market on the TV station side getting better or worse right now?

We are seeing strength in the scatter market. Food showing a little more strength in HGTV right now looking into the fourth quarter, but both brands. Some good pressure supporting our pricing going into the rest of the year. As you know, historically the fourth quarter -- our two biggest brands, Food and HGTV, they really drive some unique endemic demand around the holiday season and that is no different this year than in other years.

We have Bill Peterson who has our TV group in the room. Bill, do you want to talk about spot?

Well if you look at our guidance for fourth quarter at 6 to 8% without political, that is actually greater than what we have seen throughout the year earlier. But the real calculus is trying to figure out since we were so strong with political last year how much regular business was being displaced. So I think you would have to say that it looks like our business is pretty much flat as we're moving forward at least through fourth quarter.

Just one question if I could on Shopzilla. Just wondering if we look at the incremental profitability year-over-year, Ken, do you think that is sustainable over the next several quarters? Is the business going to be pretty linear here or is there going to be some investment spending coming up. Any forward disruption in the business that we should think about as we model it out quarter by quarter?

Let me let Joe take that because we look a little bit more at the business financial model on that side. But go ahead Joe.

Bill, I don't think you should see -- or we certainly don't expect that anything is going to have a significant effect on the shape of the curve. They do a fair amount of investment spending as they go. This is a business that does not require a lot of capital. So their investment spending is really in people and in ways they can change the algorithms there. And it's sort of a constant day-to-day sort of investment.

The one area that we may or may not spend a little more heavily on as we go forward is international expansion. And we have looked at their plans and they seem measured and they will be sort of some way indicated by the size of the opportunity there. So we size it up. We don't have any specific plans to accelerate spending there. So you should not see much of a deviation from the growth trend. I think we all feel pretty strong about it.

That's great. Thank you very much.

Paul Ginocchio, Deutsche Bank.

Two questions real quick. A little nitpicky on September for Shop At Home. I know Emeril was there at the end of the month, but revenue growth really decelerated. Was there some other categories you were winding down as you ramp up Home and Food?

Second, is it safe to assume that Shopzilla can accelerate from here because you're still working on migrating legacy traffic from SSP, your Scripps sites into Shopzilla? Thanks.

Go ahead, John, with the first part.

Paul, a couple of effects in September. Probably the most significant would be Katrina, the Hurricane Katrina and Rita affecting not only just time and interest in homeshopping but also literally the number of subs available in those regions. But in terms of the business, our migration away from electronics is continuing, albeit slow. And we have also invested somewhat in our shipping costs to try to drive sales, and that also has a downward effect on the P&L in trying to drive sales by offering lower price or free shipping.

So it is a few moving parts that were unique to September, the most significant being Katrina. But I would not say the deceleration in September is a predictor of October and the fourth quarter. I think it was a unique month.

Paul, let me jump in on Shopzilla. There is absolutely a chance it could accelerate from here and we're trying to be measured in our enthusiasm about it. They do have a number of we'll call them technical enhancements keyed up that they are working on that actually make the site a lot more robust and friendlier to use. And that in combination with some modest improvement in marketing and getting the brand out along with the traffic we can send their way, we think there are a lot of elements that could add to a much more robust acceleration. But as I said, we try to be measured in this and we're not predicting anything out of the ordinary or out of the stratosphere here.

Thank you.

Craig Huber, Lehman Brothers.

First a real all nitpick question. For September, could you just give us the percent breakdown of change for help wanted, real estate and autos on the newspaper side? And then also, back on cable, could you talk for a second here about the upcoming season? I think you have roughly 5% CPM (ph) increase you've talked about. It sounds like you are guaranteeing 10 to 12% higher viewership. Is that correct? And if so, off of what base? What you guaranteed a year ago or what the actual was?

Greg, we will let -- Mark, do you want to take the --?

You just want the month of September translated? (multiple speakers). Auto was essentially flat, up 0.6%. Real estate was up almost 38% and employment up 31% roughly. And in terms of the -- how widely auto was up about half the markets were up, half were for down. In real estate and employment, though, almost all the markets experienced double-digit growth.

John, on the cable side?

You may have noticed when in earlier discussions we talked about our CPM growth was in the 4 to 5% range which indeed was among the best in broadcast and cable as a matter-of-fact for this particular up front season. But our volume growth was actually 18%, which was triple the average for cable in the up front. And our ability to grow volume and outpace our pricing growth is tied to the churning of lower paying advertisers for higher paying advertisers within the entire advertising space.

So that is one component that allows us to carry volume growth that is higher than our pricing growth. I'd rather not get into ratings guarantees for competitive reasons, but essentially the churn is the most significant factor there.

Thanks for that and if I could also just ask the 25% ad revenue for the cash you have for the fourth quarter, is that pretty level each of the three months?

Yes, it is fairly level.

Thank you.

Lauren Fine, Merrill Lynch.

Thank you. Just a few questions. Going back to the whole Denver production facility, I'm wondering if you could give us a sense of the timing of the 130 being spent and presumably your share is 50%. Then I guess I'm just surprised. Both of the facilities that both you and your competitor have there are relatively new facilities and I guess I'm surprised that there isn't a way to use some of the existing presses. And so I'm just curious what went into the thought process and which one will be kept open and which one will be kept closed?

And then really just more a big picture question. As you look at the migration to the Internet and what is going to make media companies successful or not, do you think that you'll have enough scale among all of your brands to really compete against some of the really big companies that have come about the last ten years?

Okay, Lauren. Rich, do you want to take the first part of the Denver question?

Let me talk about the plant out there. Our plant is 10, 12 years old I believe, built sometime just after 1990, early 1990s. And some of you have visited at the S-flow (ph) facility. That will be the site where the new production facility is being consolidated into.

We looked at the value and the use of the presses there, Lauren, and came to the conclusion that if you're really going to do a newspapering for the future and you want to capture all the cost savings that the prudent thing to do was to buy some new presses. And to go ahead and begin to decommission some of the ones that were there in place. And that really is a desire to leap forward to where we think what has to be done for the long-term. If you really want to be most efficient to be able to get the size of those newspapers down and be able to do a lot more color and a lot more modular selling.

So yes, there was some equipment there on the ground and we thought the best thing to do for the long-term was to leap all the way out to where you want to be -- to be absolutely most efficient for the very long-term in that market. The market at the top line is still kind of week. But all the time we spend and as hard as we look at it, we truly do believe that all up and down the front range is going to be very good newspaper market for the long term.

So that was the thinking. It was let's do it as quick as we can get to where we think we really need to be for the long, long term there. (multiple speakers)

Lauren, I don't have with me the timing of the cash spend. The money as I mentioned in my comments -- the project is financed at the D&A level. So, and they have set up their financing already. They will draw down against the financing as they need it. It will take place obviously over the next probably 18 to 24 months. I don't know when the first draws are. We can get you that.

The effect on us from a cash point of view will be at the service of that obviously there will be lower distribution. The interest expense on the carry and then any kind of principal repayment but they don't have an obligation for principal repayment. It is a revolving facility. So we don't expect a significant effect although there will be obviously there will be interest expense that will reduce the cash available.

Lauren, it's Ken. To your question about basically the Internet integration and being big enough to compete. Obviously through the acquisition of Shopzilla it continues our strategy of really focusing on the Internet and the opportunities there. Just to throw a couple of numbers out, as I mentioned earlier, year-over-year, just Scripps Networks websites alone year-over-year by themselves are up 45%. Food is up 37%. HGTV, 41%. GAC is up 84%. Shop At Home for example, which we do factor in even though it is not necessarily apples-to-apples, is up almost 250%.

If you add Shopzilla into the Company, we have increased in unique visitors from about 12 million last September to 27 million, which is a 122% increase. And we continue as we focus on broadband and with things like HGTV Pro to help drive those numbers up. As we have said all along, strategically going forward if we see some acquisitions that makes sense that would enhance our Company's Internet presence and capabilities, we'd take a hard look at those.

So right now we are ranked somewhere in the top 20. I think somewhere between 15 to 20 of all media, of all companies on website traffic. So obviously continues to be a priority for us. And I think we are where we are because this has been a priority for a number of years including the fact that things like launching HGTV.com, the Food Network.com were real priorities. So we have always had an Internet focus and we will continue to have especially with where broadband and high-speed Internet access is going.

Thank you.

Brian Shipman, UBS.

A little bit of a follow-up question here on the JOAs. If you could explain a little bit why depreciation is so much higher in Q4 this year than what we will see on a quarterly basis in 2006?

And then also separately if you could discuss a little bit about some of the new shows you have highlighted? Just last month in New York for the cable networks, stuff like Buy Me and My First Place etc., how they are performing so far in the new season? Thank you.

This is Joe. I'll take the first question. That's a good question. Obviously we spend a lot of time on the timing of the write-down of the equipment. There has been a fair amount of work done by the Accounting Standards Board on asset impairments and the like. And the net result of that is that you tie your write-downs to the specific timing of the decommissioning of the assets that are there.

So I don't know if you know and this may be deeper than you want to go but the way this project is going to lay out -- it is an expansion of the old Rocky Mountain News plant, which means that we are going to tear down some walls, expand the plant, and take the presses that are in there out and put in new presses. So one of the first steps in the process is to decommission two of our presses in our old plant. So we've shortened the life of those presses dramatically down to about two months here. And so what you get in the third and fourth quarter is a big hit from the decommissioning of those first two presses.

That will do it.

Yes, that will do it and then after that it is a more measured decommissioning of equipment as you go and that is why it is smoothed out for next year.

That is helpful.

John, on the shows?

The fourth-quarter programs are really just now beginning to launch. Buy Me is one of our sixth series that has launched. It had very good improvement year-over-year in the time period in terms of households impressions, but most importantly, it was up even more in young adults. Young adult impressions grew beyond the rate of the households impressions. So we are continuing to see that trend that we have seen throughout the year that brings down our average age of our viewer and increases the composition of our total viewing audience with the key demographic that our advertising executives sell.

My First Place actually launches on Saturday and I hope you will be watching.

As a matter-of-fact, Bryan, is just that expanding household that the Shipman residents will have more time to watch TV. We would appreciate a little more viewing out of the Shipman household, okay?

I'll introduce my 18-month-old to it this weekend.

Excellent. He'll be addicted, I promise.

Edward Anatornio (ph), Benchmark.

Good morning. Could you give us -- I added up the losses on DIY, Fine Living, and GAC at a positive 1.6. Any other losses on developing items you would want to talk about?

Second on getting back to the question on new programming, could you give us the latest ratings to the extent you can on some of the other new shows that are up and running?

Actually the bulk of our new shows will be starting beginning next week. I think I mentioned earlier our national ad campaign began this week. And so we will be able to report those to you next time we have a chance to talk. But we certainly are very, very confident and excited about the shows before they hit the air based on the early reviews that we have had and also the market research that we have done prior to launch.

Ed, back to your first question, in addition to those startup networks you mentioned we have on a bunch of other development projects including VOD and broadband and some other things. We've spent just over $2 million in the quarter.

Total or are those in addition to the other ones?

That is on top of the others.

Thanks.

Gary McDaniel, Standard & Poor's.

Most of my questions have been answered, but I do have one left. On the accelerated depreciation out in Denver, did the 40 million that you list, does that includes the 9 million that you took in the third quarter?

Yes, it does.

It does. So the 2007 impact would be what then, I guess about 9 million? Is that right?

It would be whatever the residual is.

Thank you.

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